Letter to Shareholders

Flavio Cattaneo

Dear Shareholders,

 2011 was the seventh consecutive year that registered positive results. We did very well, confirming a 21 eurocent dividend in line with the previous year, despite the impact of the Robin Hood Tax and the difficult national and international situation. Our Group, that since 2005 to the present has climbed 4 positions in the ranking of the leading global TSOs for km of electricity lines managed, reaching the absolute sixth place ahead of the American AEP, can rely on an unparalleled solidity.

We have demonstrated quickness in adapting and today our strategic pillars, solidity and capability for creating value, are stronger than ever. A value that we have also proudly given the country, with 4 billion euros saved for the electricity system from 2005 to the present and a focus on sustainability that represents globally recognized excellence.

Revenues, Ebitda, Profits and Investments increased thanks to a preventive strategy on non-traditional and non-regulated business, on innovation and technology.

As of December 31, 2011, the Terna Group invested 1,229 million euros increasing by 67 million euros compared to 2010.

Of particular importance, the projects for the Sorgente-Rizziconi connection (118 million euros) and the Chignolo-Po- Maleo line (69 million euros), the Italy-France connection (55 million euros) and the Montercorvino-Benevento power line (25 million euros).

At the consolidated level and comparing data with the results achieved in 2010, revenues increased by 2.9% standing at 1 billion and 636 million euros, the Gross Operating Margin stood at 1,230 million euros increasing by over 4.7%. The negative impact of the Robin Hood Tax (153.8 million euros, equal to approximately 40% of 2011 taxes) was offset by the proceeds from Non Traditional Activities registering Group Net Profits at 440 million euros, while the adjusted Net Profits for continuing activities of extraordinary items reached 465 million euros, increasing by 1.1%.

These results allow proposing the distribution of a total dividend equal to 21 eurocents, thanks to the proceeds from Non Traditional Activities, in line with the previous year.

The company’s objectives continue to be focused on technology and innovation for grid safety. 2012 will aim at implementing the projects included in the 2012-2016 Strategic Plan: in the next 5 years 4.1 billion euros will be invested for the safety and modernization of the electricity Grid, developing over 300 building sites across Italy, when full operating.

The amount of the capex will be practically doubled for Non Traditional Activities (up to 1.9 billion euros) compared to 1 billion euros included in the previous Plan. By enhancing the company’s strong technical and engineering expertise, in addition to 1 billion euros for building battery storage systems, up to 900 millions could be included for Non Traditional Activities both in Italy and abroad in projects for private customers where the expected returns are higher than those for regulated activities. As already announced to the market, we are confirming our dividend policy in line with the above-mentioned strategy for creating value that will continue to be satisfactory for shareholders: as of 2012, the base dividend from Traditional Activities will be equal to 19 eurocents per share, to which the contribution from Non Traditional Activities will be added (60% pay out on results and/or gains).

We are now aiming at a different mix for our investments and as of April 1, 2012 the Terna Group’s new organizational structure became operational, developed for strategically assessing business opportunities deriving from the Industrial Plan and for maximizing efficiency in managing our activities.

The new corporate structure intends to reflect our willingness in supporting this strategic development as best as possible through our unique technical expertise in the field.

Terna Rete Italia, that includes most of our people, is responsible for all activities regarding the national electricity grid included in the concession: operation, maintenance and development of the national electricity transmission grid. The company will also have the task of implementing the projects the Parent Company established in the Development Plan.

Terna Plus will be responsible for developing non traditional and non regulated activities: particularly, for implementing battery storage and energy efficiency systems and for developing engineering solutions for third parties. Terna Plus will also be responsible for finding development opportunities abroad.

Lastly, the Parent Company Terna Spa, will have Management and Coordination power and duties for developing the Group’s activities, particularly referred to defining strategic guidelines for the financial policy, to governing accounting and tax processes as well as planning and controlling the Group’s operational management; moreover, it will oversee risk management activities, as well as management of institutional relations, including relations with the public authorities and activities regarding legal issues and fulfilling the Group’s obligations, managing the entire corporate organization.

Our values and our identity are always the same and represent our greatest strength. The new organization and the Industrial Plan represent not only a challenge, but also the natural development of our consolidated history that now looks ahead to new objectives to be reached together.

2012 started off well and the commitment undertaken by all the Terna team leads me to believing that growth will once again be achieved.